Listing of Securities
EU directives have laid down common standards for stock exchange listing requirements. The rules provide for the information that must be published when companies are first admitted to the exchange and their ongoing publication obligations.
The documents are provided and published in the country where the issuer of the shares has its registered office. Issuers registered in countries outside the EU may qualify for exemptions, provided the information in the other country is equivalent to that required in the EU.
A directive consolidated and updated existing directives with a view to the modernisation of equity and securities markets. The purpose is to have common EU standards for capital markets. The rules cover all securities such as shares and debt instruments such as bonds.
There are common requirements for the approval by the regulatory authority of prospectuses. There are common standards in respect of the information on the financial circumstances of the company, which must be disclosed. The prospectus must publish information in a very wide range of areas in respect of the issuing company.
The common standards allow for the mutual recognition of the prospectus. However, this mutual recognition does not entitle a company entry into other country’s exchanges.
The transparency directive harmonises requirements in relation to information about entities which issue securities such as stocks and bonds on a financial market. There are detailed disclosure requirements.
Periodic information must be furnished regarding the financial situation of the entity concerned and of any enterprises it controls. There are exemptions for states, local authorities, certain public institutions.
The ongoing information which must be provided to investors should be regular, adequate, and sufficient. Member states determine the publication requirements within these criteria. The information must be sufficient to ensure the investors possess the requisite knowledge in relation to the value of the shares or other securities concerned.
Information must be supplied regularly while securities are listed. It must accurately reflect the current situation and prospects of the issuer. Investors must be informed by shareholders of major shareholdings. It must be published promptly, given the nature of the markets.
The periodic information required to be issued includes annual financial report within four months after the end of the financial year and half-yearly report within two months at the end of the period.
The information must be made available to the public. There are ongoing obligations to disclose information as circumstances require. This includes details of holdings in the issuer which affects voting rights. Similarly, changes in rights attaching to shares and new loan issues on any guarantee or security must be disclosed.
Holders of shares having the same rights must be treated equally. Shareholders must be in a position to exercise their rights by proxy. The issuer of securities must designate a financial institution through which shareholders may exercise their financial rights.
An EU regulation provides for the use of international accounting standards for listed companies. The international accounting standards are adopted by the International Accounting Standards Board. The common rules are known as the international management reporting standards.
The home state of the issuer is the principal regulator. Each state must designate its competent authority to implement the requirements. The authority must have the necessary powers to perform its functions including
- monitoring of disclosure of timely information and publication of its own initiative of information not disclosed in the times;
- requests for further information and documents;
- verification of compliance with disclosures by on-site investigations;
- suspension of trading in securities.
The tasks may be delegated and delegation must be notified to the Commission. The delegation may be, for example, to a stock exchange..
The EU has harmonised accounting standards for listed companies. This is designed to protect investors. The International Accounting Standards Board publishes the international standard. From 2005, all listed companies must prepare consolidated financial statements in accordance with IAS.
Shareholders either individually or collectively must be entitled to put items on the agenda and submit draft resolutions. There may be a requirement for a minimum of 5 percent shareholding.
Shareholders may ask questions relating to items on the agenda and the company must respond. Shareholder’s participation and voting at general meetings must not be subject to limitations other than the requirement that it be registered by a record date. This may not be earlier than 30 days before the meeting.
States must abolish restrictions on shareholder participation by electronic means. Each shareholder may vote by proxy. States must authorise shareholders to appoint and revoke their proxy by electronic means. States must authorise companies to offer the shareholders the option of voting by correspondence prior to the meeting.
The market abuse regulation (MAR) seeks to ensure that European Union (EU) regulation keeps pace with market developments in order to combat market abuse on financial markets as well as across commodity and related derivative markets (i.e. markets trading primary products such as gold, wheat, etc., and financial instruments based thereupon).
It reinforces the investigative and sanctioning powers of the regulators appointed by EU countries to ensure the proper functioning of their financial markets.
It ensures a single EU rulebook while reducing administrative burdens on smaller and medium-sized issuers where possible.
Market abuse inhibits the full transparency which is essential for trading in integrated financial markets. The rules outlaw 3 types of abuse:
- market manipulation;
- insider dealing;
- unlawful disclosure of non-public information.
MAR rules apply to a person or a company committing market abuse with respect to the trading of financial instruments, whether through trading platforms or negotiated privately in ‘over-the-counter’ transactions.
MAR rules require EU countries to specify administrative pecuniary sanctions of at least € 15 million or 15 % of the total annual turnover for legal persons (such as companies) and of € 5 million for individuals, to be applied by the competent authorities.
MAR rules reinforce the supervisory and investigatory powers of the regulators appointed by each EU country to ensure the proper functioning of their financial markets. For instance, among other powers, they are able to carry out on-site inspections and investigations and to request the freezing or sequestration of assets.
Since the adoption of the MAR, the Commission as adopted a series of regulations that supplement or further clarify certain aspects of the regulation. These cover, among other things:
- details regarding the insider lists that issuers of financial instruments must draw up
- rules concerning the notification of suspicious orders or transactions
- rules on the presentation of investment recommendations.